Über die Autorin bzw. den Autor

Günter K. Stahl is Assistant Professor of Organizational Behavior at INSEAD (Fontainebleau and Singapore). Mark E. Mendenhall holds the J. Burton Frierson Chair of Excellence in Business Leadership at the University of Tennessee, Chattanooga.

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MERGERS AND ACQUISITIONS

Stanford University Press

Contents

Contributors.....................................................................................................................................................................................................ixPreface..........................................................................................................................................................................................................xiiiIntroductory Comments Carlos Ghosn and Jean-Pierre Garnier......................................................................................................................................................xviPART I Introduction1 Sociocultural Integration in Mergers and Acquisitions Gnter K. Stahl, Mark E. Mendenhall, Amy L. Pablo, and Mansour Javidan..................................................................................32 Integration: The Critical Link in M&A Value Creation David M. Schweiger and Robert L. Lippert.................................................................................................................17Executive Commentary Tae-Gyun Shin..............................................................................................................................................................................46PART II The Process of Sociocultural Integration in Mergers and Acquisitions3 Organizational Learning in Cross-Border Mergers and Acquisitions Danna N. Greenberg, Henry W. Lane, and Keith Bahde...........................................................................................53Executive Commentary Jean Luc Scalabre..........................................................................................................................................................................774 Trust in Mergers and Acquisitions Gnter K. Stahl and Sim B. Sitkin...........................................................................................................................................82Executive Commentary Hans-Peter Engeli..........................................................................................................................................................................1035 The Role of Corporate Cultural Diversity in Integrating Mergers and Acquisitions Georg Schreygg..............................................................................................................108Executive Commentary Albert Young...............................................................................................................................................................................1266 The Construction of Social Identities in Mergers and Acquisitions Stein Kleppest.............................................................................................................................130Executive Commentary Bjrn Z. Ekelund and Aina Aske.............................................................................................................................................................1527 A Learning Perspective on Sociocultural Integration in Cross-National Mergers Ingmar Bjrkman, Janne Tienari, and Eero Vaara..................................................................................155Executive Commentary Bernd Ratzke and Tom Kelly.................................................................................................................................................................176PART III The Management of Sociocultural Integration in Mergers and Acquisitions8 Synergy Realization in Mergers and Acquisitions: A Co-Competence and Motivational Approach Rikard Larsson.....................................................................................................183Executive Commentary Shlomo Ben-Hur and L. Todd Thomas..........................................................................................................................................................2029 The Neglected Importance of Leadership in Mergers and Acquisitions Sim B. Sitkin and Amy L. Pablo.............................................................................................................208Executive Commentary Wilfried Meyer.............................................................................................................................................................................22410 Psychological Communication Interventions in Mergers and Acquisitions Angelo S. DeNisi and Shung Jae Shin....................................................................................................228Executive Commentary Mark Jones.................................................................................................................................................................................25011 Developing a Framework for Cultural Due Diligence in Mergers and Acquisitions: Issues and Ideas Susan Cartwright and Simon McCarthy..........................................................................253Executive Commentary Max Otte...................................................................................................................................................................................268PART IV Learning from Experience: Case Analyses of Sociocultural Processes in Mergers and Acquisitions12 Managing Human Resources to Capture Capabilities: Case Studies in High-Technology Acquisitions Saikat Chaudhuri..............................................................................................27713 The CNH Global Case: Building Social Capabilities to Win in Global Acquisitions, Joint Ventures, and Alliances Piero Morosini................................................................................30214 Integration Processes in Cross-Border Mergers: Lessons Learned from Dutch-German Mergers Ren Olie...........................................................................................................32315 DaimlerChrysler: A Case Study of a Cross-Border Merger Torsten Khlmann and Peter J. Dowling.................................................................................................................35116 The Importance of the Agreement Formation Process in Partnering with the Unfamiliar: The Case of Renault and Nissan Harry Korine, Kazuhiro Asakawa, and Pierre-Yves Gomez....................................36417 Creating a New Identity and High-Performance Culture at Novartis: The Role of Leadership and Human Resource Management Chei Hwee Chua, Hans-Peter Engeli, andGnter K. Stahl..................................................................................................................................................................................................379PART V Lessons for Research and Practice18 Research on Sociocultural Integration in Mergers and Acquisitions: Points of Agreement, Paradoxes, and Avenues for Future Research Gnter K. Stahl, Mark E. Mendenhall, and Yaakov Weber.....................40119 People and Cultural Aspects of Mergers and Acquisitions: What Are the Lessons ... and the Challenges? Paul Evans and Vladimir Pucik..........................................................................412Index............................................................................................................................................................................................................423

Chapter One

GNTER K. STAHL, MARK E. MENDENHALL, AMY L. PABLO, AND MANSOUR JAVIDAN

Mergers and acquisitions (M&A) have become an increasingly popular strategy for achieving corporate growth and diversification, with M&A activity in the 1990s smashing all existing records, both in terms of the number of transactions and the size of the deals. The worldwide value of M&A increased from US$462 billion in 1990 to over US$3.5 trillion in 2000 (Thomson Financial Services, 2001). Even though this unprecedented wave of M&A has subsided in the early 2000s as the global economy cooled off and slid into recession, the M&A volume worldwide remains at a much higher level than existed ten years ago. Most business observers believe that M&A activity will intensify again and more mega-deals can be expected in the long term (Evans, Pucik, and Barsoux, 2002).

Despite their popularity and strategic importance, the performance of most M&A has been disappointing (Datta and Puia, 1995; Hunt, 1990; Sirower, 1997). At the same time, companies such as General Electric, British Petroleum, and Cisco have been very successful in managing acquisitions. Although there is little doubt that M&A, particularly those that reach across borders, are difficult to manage, the key factors for M&A success and the reasons why so many M&A fail remain poorly understood.

The Importance of Sociocultural Integration

Over the recent decades, M&A research has branched along several paths:

- Strategic Management which examines strategic motives and drivers of M&A and their implications for merger performance. Bower (2002) identified five distinct strategic reasons for M&A: to reduce capacity, to implement geographic expansion, to extend product lines, to acquire R&D capability, and to exploit emerging convergence of industries. Bower suggested that different strategic drivers require different types of postmerger implementation plans and can have widely different outcomes. Other authors have suggested that mergers can take place to enhance learning (Ghoshal, 1987) and to gain access to improved resources (Barney, 1991). Acquiring firms may use M&A to achieve synergies in cost efficiency (Walter and Barney, 1990) or to increase their market power (Trautwein, 1990). Various authors have examined the consequences of various strategic drivers for the performance of the merger and have reached sometimes conflicting results (Lubatkin, 1983; Seth, 1990; Singh and Montgomery, 1987; Sirower, 1997).

- Capital Markets perspective which looks at M&A performance using stock-market-based measures. In this approach, M&A are viewed as investments that require a financial return for the purchaser rather than a windfall for shareholders of the acquired firm. Stock-market-based measures (so called "event studies") are commonly used to measure cumulative abnormal returns (CARs) a short time after announcement of the M&A in an effort to measure how markets perceive the deal (Chatterjee, 1992; Jensen, 1986; Seth, 1990). Sirower (1997), in a review of such studies, showed that the average acquirer's CAR measured over a two-day period ranges from -0.8 to -3.35 percent. He further showed that anywhere from 59 to 79 percent of acquiring firms have negative CARs. Datta and Puia (1995) also showed that acquiring firms in cross-border mergers do not create value for their shareholders. A few other studies, however, show more positive results. Shelton (1988) found that the acquisitions that provide access to new markets create shareholder value. Lubatkin (1987) concluded that mergers lead to permanent gains in value for both acquiring and target firms. Jensen (1988) estimated that during the period 1977-86, buying firm shareholders enjoyed at least $50 billion in gains while shareholders of acquired companies enjoyed gains totaling $346 billion.

- Economic Performance which examines accounting-based measures of M&A performance to measure relatively long-term performance of mergers. The literature typically uses cumulative excess returns (CERs) over industry average returns over a period of time to assess the success of M&A preferring realized profit measures over market expectation measures. As an alternative to using abnormal stock prices, in this approach the cumulative excess returns are based on such accounting-based measures like realized profit or additional sales after the acquisition date. Healy, Palepu, and Ruback (1997) assessed the operating cash flow of the acquiring firms in fifty of the largest U.S. industrial acquisitions from 1979 to 1984. They showed that on average, acquiring firms generated sufficient returns to cover the premiums paid. Morosini, Shane, and Singh (1998) used growth rate in sales over the two-year period following the acquisition in a sample of fifty-two Italian-based targets or acquiring firms. They showed that the bigger the cultural distance between the two merging companies, the higher the sales growth rate. Hitt et al. (1991) examined the impact of mergers on the R&D investment and output of the acquiring firms and concluded that acquisitions have a negative effect on both.

- Organizational Theory which seeks to understand the processes by which previously autonomous entities are combined into a cohesive whole. The main focus of this line of work is how the two companies integrate their structures, systems, and cultures to achieve synergy. The underlying premise of this literature is that integration is the mediating mechanism between acquisition potential and acquisition performance (Larsson, 1989; Pablo, 1994). Larsson's discussion of synergies points out the delicate balance that must be achieved in integration (Larsson, 1989). The concept of synergy, ubiquitous in acquisition literature, relates to the effect of the whole being greater than the sum of its parts (Fuller, 1975; Hitt, Harrison, and Ireland, 2001) as a result of interdependencies between the parts (Porter, 1985). The acquisition's impact on the organization and the people in it can occur in a number of ways including organizational structures and working relationships (Shanley and Correa, 1992), disruption of culture (Nahavandi and Malekzadeh, 1988; Sales and Mirvis, 1984), career disruption (Jick, 1979; Walsh, 1989), and loss of status in the organization (Hambrick and Cannella, 1993). Pablo and Javidan (2002) provide a conceptual framework and a detailed case study of how cultural differences can have dysfunctional effects on the merger. Napier (1989), Schweiger and Goulet (2000), and Schweiger and Walsh (1990) provide comprehensive reviews of organizational issues in M&A. For example, it has been shown that turnover of the top management of the acquired firm is usually higher than expected (Walsh, 1989) and is generally disruptive to performance (Hambrick and Canella, 1993).

- Human Resources (HR) focus that has emphasized psychological, communication, and leadership issues in M&A. The underlying theme in this stream of work is that the "human side" of mergers and acquisitions (Buono and Bowditch, 1989) is "frequently neglected by managers' intent on doing the deal and realizing operational synergies" (Birkinshaw, Bresman, and Hakanson, 2000, p. 398). Researchers have examined the impact of the communication and managerial actions and decisions on the success of mergers (Bastien, 1987; Cartwright and Cooper, 1993; Greenwood, Hinings, and Brown, 1994; Haspeslagh and Jemison, 1991; Hunt, 1990; Sales and Mirvis, 1984; Schweiger and DeNisi, 1991; Shrivastava, 1986). Recent writings by Morosini (1998) and Marks and Mirvis (1998) demonstrate similar ideas about CEO leadership, focusing on elements inherent in the transformational leadership paradigm. For example, Marks and Mirvis (1998) discuss the importance of positive vision coupled with an articulation of the principles, values, and priorities behind an M&A. Other authors have focused their attention on the stress accompanying an M&A (Birkinshaw, Bresman, and Hakanson, 2000; Cartwright and Cooper, 1993; Schweiger and DeNisi, 1991). They note that stress in an M&A is due to such factors as a highly uncertain future, job insecurity, a loss of personal control or autonomy, and simply the notion that change in and of itself is stressful, whether or not that change will ultimately evolve into something for the better. Larsson and Finkelstein (1999) suggest that the greatest stress and resistance should logically be seen on the part of the acquired company. It may suffer from the "merger syndrome" in which its employees "mourn a corporate death" and are more likely to not view change as a positive event (Marks and Mirvis, 1983, p. 41).

In general, the diverse streams of research described above have not been well integrated to enhance our understanding of what contributes to M&A success. Attempts to explain M&A success and failure have traditionally focused on strategic and financial factors, which reflect existing M&A practice where special emphasis is placed on the strategic and financial goals of the transaction, while the sociocultural implications are often ignored.

From a managerial perspective, the central question is one of M&A success and how value is created. Following the M&A transaction, some degree of interorganizational integration is necessary to achieve the intent of the deal. However, sociocultural integration, which we define as the combination of groups of people possessing established norms, beliefs, and values, can lead to sharp interorganizational conflict as different organizational cultures, managerial viewpoints, HR management systems, and other aspects of organizational life come into contact.

Recent work (Birkinshaw, Bresman, and Hakanson, 2000) taking a more fine-grained view of integration breaks the post-M&A integration process into subprocesses reflecting task integration and human integration. This approach suggests that overall effective integration is an interactive process whereby necessary interdependencies between acquired and acquiring units build in a cyclical manner. Attempts at task integration without the lubrication of successful human integration results in only a satisficing solution, whereas human integration resulting in a sense of community and respect paves the way for the efficacious task integration that is the basis of the synergy sought through M&A. In other words, poor human integration will often block successful task integration, and task integration cannot be driven faster than success with human integration (Bower, 2002).

A Process Perspective on M&A Integration

The purpose of this book is to delineate the dynamics of the sociocultural processes inherent in M&A, and to discuss their implications for management, with a particular focus on postcombination integration management. One of the basic premises of this book is that though the strategic and financial factors are important conditioning factors of the subsequent integration process, these factors can only predict the success of a merger or an acquisition if integration process variables are taken into consideration (Haspeslagh and Jemison, 1991; Hunt, 1990; Morosini, 1998; Pablo, Sitkin, and Jemison, 1996).

The authors of the chapters in this book argue that integration process variables such as the degree of cultural tolerance and sensitivity exhibited by the acquiring firm, the quality of reward and job security changes for the members of the acquired firm, the social climate surrounding the M&A, the amount and quality of communication, and the visionary leadership and trust-building capabilities of top management are of paramount importance to the postcombination integration success. Although the initial conditioning factors, such as buyer strategy, price paid, and initial organizational fit, form the upper bound on the degree of success that a combination can achieve, the management of the postcombination integration process will likely determine the extent to which that potential is realized (Pablo, Sitkin, and Jemison, 1996).

The chapters that follow thus focus attention on the "people" issues of integrating merging firms, presenting new findings, identifying gaps in the current research, and generating new insights into important sociocultural issues and how to manage them. This book is divided into five parts:

I Introduction II The Process of Sociocultural Integration in Mergers and Acquisitions III The Management of Sociocultural Integration in Mergers and Acquisitions IV Learning from Experience: Case Analyses of Sociocultural Processes in Mergers and Acquisitions V Lessons for Research and Practice

Part I. Introduction

The chapter that follows provides the overall context for the rest of the chapters in the book by integrating the strategy, finance, and HR literatures on M&A. In "Integration: The Critical Link in M&A Value Creation," Dave Schweiger and Robert Lippert focus on the importance of effective HR management for synergy creation through integration and, ultimately, the holy grail of value creation. They suggest that there are a number of HR activities that play a key role through the various stages of the M&A process, and that during the transaction, transition, and integration phases, HR practices are critical in many ways in the decisions that must be made to ensure value preservation and realization.

Part II. The Process of Sociocultural Integration in Mergers and Acquisitions

In this part, contributors take a process perspective by applying new frameworks to suggest how M&A leaders can effectively focus their actions on the problems and facilitating factors arising in the M&A process.

Current theories of acquisition performance take into account not only those factors that indicate the potential for value creation, but also the processes through which value is actually created as synergistic benefits come to be realized. In these works, writers have taken a more fine-grained and multilevel approach to understanding the dimensions of this paradigmatic view in order to elucidate our understanding of key variables and the relationships among them.

In this part's first chapter, Danna Greenberg, Harry Lane, and Keith Bahde alert us to the intricacies of learning in M&A relationships, particularly in multinational settings. Their contention in "Organizational Learning in Cross-Border Mergers and Acquisitions" is that learning throughout the M&A process is hampered by failures in information and knowledge flow caused by differences and misunderstandings throughout the phases of the acquisition process. The specific knowledge outcomes that are expected to generate synergies do not materialize and thus limited learning about the M&A process is gained.

In "Trust in Mergers and Acquisitions," Gnter Stahl and Sim Sitkin suggest that trust building is a central element in the success or failure of M&A. This chapter emphasizes that just as trust within organizations enhances relationships, improves performance, and decreases negative manifestations within these organizational dimensions, trust is also of critical importance to maintaining relationships between organizations in an M&A context. Furthermore, in this chapter, the authors build a model that delineates the antecedents to mutual trust in M&A relationships.

Georg Schreygg leads us to consider how we deal with the issue of corporate cultures in M&A situations. In raising this issue in "The Role of Corporate Cultural Diversity in Integrating Mergers and Acquisitions," the author suggests that our focus should not be on characteristics of a corporate culture, but rather on what occurs when two (or more) cultures are thrust together and forced to interact. Primarily, he raises the question of whether, and to what degree, cultural consistency is needed for success in M&A.

(Continues...)

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